The Pharmaceutical/Life Sciences Industries are undergoing a profound change. As the business goes more towards a bottom line management focus, savings from consulting, outsourcing (globalization) and outside technical services become more important. This Blog is focused on serving the interests of those industry clients, investors and their suppliers. We will discuss issues related to the politics, finance and technology and their impact on the industry.

Monday, August 18, 2008

Is this the time we all predicted....Transformation of the Pharmaceutical Biotechnology Industry?Can the Services Industry be of help?

It is fairly obvious to those of us who are involved with the Bio-Pharmaceutical Industry that things could not stay as is. The industry is suffering with a multiplicity of challenges including but not limited to:

1.With dry (or near dry) pipelines despite massive spend on R&D.2.Negative productivity gain from additional sales force additions (interestingly enough this could be a salvation as the industry consolidates and/or continues buying pipelines or licensing deals from biotech companies).3.Massive governmental pressure on pricing and a hyper-vigilante, highly politically charged FDA making new drug approvals difficult, costly and lengthy. 4.Significant reductions in value for both Pharmaceuticals and to an extent Biotechnology companies that are traded on the stock exchanges. 5.Throw in for good measure that generic drugs now represent somewhere over 60% of all volume of prescriptions while accounting for under 20% of dollar spend and that there is a concurrent consolidation in that business.

Is this not the making of the perfect storm and is it possible that the service providers can help the industry in this regard?

One doesn't need to look much further than the business press to recognize the enormous change taking place, just look at these 5 deals that have taken place or will that are in aggregate way over $100 billion:

1.Roche wanting to buy the remaining share it doesn't own in Genentech2.BMS bidding to buy what it doesn't own of Imclone3.Pfizer's multiple Biotech purchases4.Takeda's takeover for Millenium5.AstraZeneca's purchase of Medimmune

There are several other interesting consolidations that are taking place within generics as well:

My thinking is that we are rapidly seeing consolidations on at least two concurrent fronts-and both are global:

1.Large pharmaceutical companies paying high premiums to acquire a combination of soon to be commercially attractive pipelines and/or complimentary product lines to add to their existing therapeutic areas.2.Companies of various size forcing a major global consolidation in the generic space. This becomes a most interesting aspect of the equation as more and more drugs go off patent over the next few years and pricing and reimbursement pressures mount.3.What about the next targets—it's easy to speculate about Amgen, Genzyme, Biogen-Idec and Gilead as the big fish here—but what about those big pharmas such as Merck and ScheringPlough potentially getting together and what that could mean?

Since part of our target audience are service providers to the industry, the question/challenge I pose is-what can you do to help?

Tuesday, August 12, 2008

This blog is the second in a series following up with Ken Kam of Marketocracy (www.marketocracy.com). Larry and I had talked with him last month about the drug industry and Elan Corporation PLC, currently conducting clinical trials on a drug, Tysabri, which could be used in the treatment of multiple sclerosis and Alzheimer’s disease, in particular. Ken predicted a bright future for Elan. Then came two pieces of bad news and Elan’s price came down 60% from its recent high. In my last blog, Ken explained what had happened and gave us his opinions. Today, he will talk about Elan’s future prospects and another pharmaceutical opportunity. Ken Kam’s fund, Marketocracy Masters 100 Fund (MOFQX), has continued to accumulate Elan shares despite the 60% sell off. He says that a two year investment horizon is needed. By then the Phase 3 clinical trial data for Tysabri will be out and the Phase 2 data will be analyzed and fully appreciated. (See my last blog for Ken’s position on Tysabri’s Phase 2 clinical trial results.) According to Ken, analysts have a short term impact on a stock’s price, long term, it’s the multiple sclerosis patients taking the drug that affect the price.

While admitting to the risks arising from PML with use of the drug, Ken believes that it is still well below expectations and when caught early is survivable. People will have to become comfortable with its risk though. He notes that it is rare to have a new class of drug that has such a big effect on a disease that a lot of people have.

Ken was shocked at the market reaction but feels that it is a Wall Street reaction and not a real world one. In particular, Ken feels that the accusations of data mining and lying that were thrown at Elan in recent weeks were totally unfounded.

Ken’s expectations are that Elan will have to play out to the end of the Phase 3 clinical trials for optimal valuation. Meanwhile, Elan is a good valuation and could be a takeover target. Ken thinks the investment community is presently looking at the valuation differences and measuring them. He is unsure about what to hope for, a takeover bid or letting it run out.

Our opinion is that Wyeth has surely got to be interested in Elan at this price level and diminished market cap as the risk-reward levels are extremely attractive. While considered a takeover play itself, Biogen Idec may also find Elan an attractive takeover target as well.

In wrapping up, we asked Ken what other opportunities did he see in the pharmaceutical sector. He replied that he liked Novo Nordisk and their new diabetes program which is in Phase 3 clinical trials. Ken also noted that Wall Street often gets clinical trial data wrong and this is what creates the opportunities in the market.

As always, Larry and I found Ken Kam’s opinions and views interesting and a little contrarian. We’ll stay in touch with him and, again, would like to thank for taking the time to meet with us.

Sunday, August 10, 2008

Last month, Larry and I had the opportunity to interview Ken Kam of Marketocracy (www.marketocracy.com) about the drug industry and Elan Corporation PLC, currently conducting clinical trials on a drug, Tysabri, which could be used in the treatment of multiple sclerosis and Alzheimer’s disease, in particular. Ken predicted a bright future for Elan. Then came two pieces of bad news and Elan’s price came down 60% from its recent high.

Larry and I wanted to follow up with Ken and talk about what happened and what he thinks about Elan’s future. Ken graciously made himself available for us recently and what follows is a summary of our conversation.

When we asked Ken what happened, he replied that these things happen when a company’s value is tied up in clinical trial data, because a lot of investors react to just the headline He feels that when the dust settles people will have a different view when they look at the data. The confidence level for the trial results was at 92% instead of the expected 95%. But, despite trial data showing drug safety and being very close to efficacy at the top level, the stock began moving downward. That was the first piece of bad news. Then came the second.

An announcement came out later indicating that twelve cases of vascular edema and three deaths. As Ken put it, although the three deaths were unrelated to the trial and the cases of vascular edema were safely resolved, unexpected deaths and complications are never good when associated with clinical trial results. (Although, recently neither Ken nor Larry could retrieve that news item.) However, Ken feels that CNBC got the story right in Mike Huckman’s broadcast where he differentiated between those trial participants who had the gene for the disease and those who didn’t. The results for both groups would obviously be different which Huckman got but the market didn’t follow his lead. As the bad news was coming from a medical conference, Ken said, it is very important and can really drive the stock. And, in this case, a lot of people piled on. In addition, there were two cases of PML from the users of Tysabri in Europe. Although it looks like both patients will survive, one is already home from the hospital, PML can be deadly.

Ken went on to say that investors need to look past the headlines and get into the specifics to understand what’s going on. Analysts can be off the mark with knee jerk reactions. It takes a long time for a drug to build a reputation. In Ken’s opinion, Bapineuzumab warrants going to Phase 3 clinical trials. Phase 2 trials are to determine safety and how to dose. Phase 3 results are the ones that really count.

Ken told us that 14,000 patients have been taking Tysabri for over a year. 30,000 patients are now currently taking the drug. He believes that Tysabri is more effective than any other drug on the market for treating multiple sclerosis. His opinion is based on his review of the clinical trial results as well as from members of his online investment community at www.marketocracy.com.

I’m stopping here for now. I’ll continue our interview with Ken Kam in my next blog which will be posted in two days. In it, Ken will talk about his opinions on Elan’s future and another opportunity in the pharmaceutical sector.

Tuesday, August 5, 2008

Larry I think you're right on with the assessment... and I'd predict start-ups will be in the integration of technology, information and services. Take the cocreation that is happening with the iPhone 3G where folks can create applications for the device and have them 'posted' at Google for public consumption. I think we're at the cusp of a period of high invention as computing power is not a barrier to solving problems.... sometimes real-time for businesses and individuals. I want my iPhone to tell me when to replace my toothbrush 90 days after I open the wrapper --- naturally when I'm in a food store near the toothbrush aisle.

Monday, August 4, 2008

Normally, I don’t write much about the economy in general. But, recently, Larry was forwarded a link to the ADP National Employment Report®. We read the report and came away with a few observations.

While there wasn’t any specific information concerning the pharmaceutical industry, we noticed a couple of things that may be of potential impact. First, US employment declined by 65,000 positions in the month of July in the goods-producing sector where we figure the pharmaceutical industry is located. Certainly there have been numerous reports of continuing layoffs, restructurings and consolidations within the industry we follow which may reflect the macroeconomics cited in this study. The report goes on to say that the sectors hardest hit were those affected by recent difficulties experienced by the mortgage markets. (Do I have a knack for understatement or what?) So, even allowing for the mortgage mess, large employer payrolls still seem to struggling. Second, employment in small businesses defined as those with under fifty (50) employees actually increased by 50,000 during the same period, July.

Here’s what Larry and I came away with. We suspect that outsourcing and offshoring are continuing to eat away at jobs in the types of large companies defined by this study. Next, the growth in small businesses could be a resurgence in the type of small start-up’s which has fueled the start of growth in sectors as varied as technology and biotech in the past. Admittedly, Larry and I are going on a limb here but since we have over a half century of business experience between us, we don’t think that we’re too far off the mark. We hope to interview one of the economic advisers behind this study and test our ideas. Please keep an eye out for future updates on this blog.